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WIKI ANALYSIS
Wynn Resorts, Limited (NASDAQ: WYNN) develops and operates luxury casino resorts. The company owns the Wynn Las Vegas and the Wynn Encore in Las Vegas, Nevada and the Wynn Macau in China. All of these properties are marketed as luxury resorts[1] and, in Las Vegas, WYNN likes to position its resorts as the most expensive in the city.[2]
Although Wynn caters primarily to more affluent customers, 2009 Financial Crisis and accompanying economic downturns, have demonstrated, that the company is far from immune to prevailing economic conditions. WYNN's two Las Vegas resorts saw a drop in occupancy rate from 96.0% in 2007 to 91.8% in 2008;[3] CEO Steve Wynn decided to cut room rates to keep occupancy over the 90% mark[4] which resulted in a $23 drop in RevPAR[3] for the year. WYNN's Macau revenues come only from its Wynn Macau resort, which only saw its occupancy rate drop from 88.8% to 87.3% but a $17 RevPAR increase during the same period.[3] Despite $300 million growth in total revenues, WYNN saw a $40 million (or 18.6%) drop in net income for 2008.[3]
Wynn Macau generated over 60% of the company's total revenues by 2008.[5] While it has fared better than the company's Las Vegas properties, Wynn Macau is vulnerable to unfavorable changes in Chinese law and regulations. For instance, in 2008, the government, in an attempt to cool down the rapidly overheating Macau market, imposed restrictions on the number of travelers who can visit the island.
Although the company missed its 44 cent 2008 Quarter 4 average earnings estimate by 37 cents,[6] the company issued a press release in February 2009 reaffirming its no-layoff policy.[7] This strategy puts WYNN it in a very different position than its competitors like Las Vegas Sands which have made thousands of layoffs in 2009.[8] Instead of saving big on labor costs, WYNN cut its average daily rate by $23 in Las Vegas[3] to keep occupancy levels high,[4] but the strategy did not avert the earnings miss as businesses cut down on conference expenditures and travelers cut their budgets across the country.[2]
Business Overview
Wynn Resorts is an owner and operator of destination casino resorts led by Stephen A. Wynn,[9] builder of the Mirage, Treasure Island, and Bellagio resorts in Las Vegas.[10] Since its foundation in June 2002, the company has developed three resort properties at the "Strip" in Las Vegas, Nevada, and in Macau, China,[9] and plans to develop more properties in the Cotai region of Macau.[11] Wynn's strategy includes peppering its resorts with exquisite luxuries in order to secure high-end gaming customers but the company uses reduced prices and complimentary meals to attract less affluent customers.[12]
Business and Financial Metrics
| 2008 | 2007 | 2006 | |
| Total Revenue ($ millions) | 2,987.32 | 2,687.52 | 1,432.26 |
| Operating Income ($ millions) | 336.20 | 429.25 | 58.37 |
| Net Income ($ millions) | 210.21 | 258.15 | 628.73 |
| Operating Margin (%) | 11.3% | 16.0% | 4.1% |
| Gross Margin (%) | 7.0% | 9.6% | 43.9% |
| Increase in Revenues (%) | 11.2% | 87.6% | 98.4% |
Wynn's revenues have consistently seen substantial growth but its net income has not. In 2008 Quarter 3, total revenues were $769.2 million, up 15% from 2007 Quarter 3.[13] During the same period, however, the company suffered from an array of increases to its bad debt reserves because of "global economic uncertainty" and large decreases in table game play.[13]
The cutback in gambling due to the recession was felt by Wynn in 2Q09, as the company's net income fell by 90.63% to $25.479 billion.[14] Although operating revenue fell by comparably less, or 12.35%, the portion of revenue attributed to gambling fell by 18.49%.[14] Moreover, Wynn was unable to decrease costs in light of the decreased capacity, as operating expense only dropped by 5.95%.[14] Wynn was able to purchase $65.8 million through the first half of 2009, which resulted in $13.7 million of savings related to the debt's early retirement.[14] Despite restrictions on travel to Macau, which left occupancy at 87.9% compared to 96.5% in Las Vegas in 2Q08, it remained relatively constant--at 86.7%--in 2Q09. Las Vegas travel, however, was particularly impacted, as it fell by 9.9 percentage points, to 86.6%.[14]
WYNN reported net income of $34.2 million in 3Q09, a 33.2% fall as compared to 3Q08.[15] While gaming revenue declined overall in 3Q09, WYNN increased its rooms, food, and entertainment revenue for the quarter, which led to a modest increase in revenue of $3.9 million, to $773 million.[15] Still, WYNN was able to grow the average number of table games and slot machines in Las Vegas by 56% and 42%, respectively, while decreasing revenue less than proportionately (42% and 34%, respectively).[15] The company's Macau operations, which issued an IPO in 3Q09, had modest occupancy rate and revenue per available room (RevPAR) growth of 300 bps and $1, respectively.[15] Moreover, adjusted property EBITDA increased by over 20% to $128.3 million in 3Q09.[15]
Business Segments
Wynn operates in two segments - Wynn Las Vegas and Wynn Macau - that target two different markets.[9]
Wynn Las Vegas (36.8% of total revenue)[5]
| 2006 | 2007 | 2008 | |
| Occupancy | 94.4%[17] | 96.0%[17] | 91.8%[3] |
| Average Daily Rate | $287[17] | $300[17] | $288[3] |
| RevPAR | $271[17] | $288[17] | $265[3] |
| Total Revenue ($thousands) | 1,138,549[18] | 1,295,381[18] | 1,098,889[5] |
This segment includes the operation of two resorts: Wynn Las Vegas and Encore at Wynn Las Vegas.[9] The Wynn Las Vegas resort has 2,716 rooms and suites and its casino is approximately 111,000 square feet, with 140 table games, a baccarat salon, VIP gaming rooms, a poker room, about 1,970 slot machines, and a race and sports book.[9] It also has 22 food and beverage outlets, two nightclubs, a spa and salon, a Ferrari and Maserati automobile dealership, wedding chapels, an 18-hole golf course, 223,000 square feet of meeting space, and a 74,000 square foot retail promenade featuring various boutique shops.[9] Its two showrooms are the “Le Rêve” Theater - which features a water-based show called “Le Rêve” - and the Broadway Theater, home of “Monty Python’s Spamalot" since 2007 Q1.[9]
Encore at Wynn Las Vegas includes a 2,034 all-suite hotel tower, a 72,000 square foot casino, additional convention and meeting space, five restaurants, a nightclub, swimming pools, a spa and salon, and more retail outlets.[19] The Encore at Wynn Las Vegas opened on December 22, 2008 during one of the worst tourism slumps in Las Vegas history.[16]
Wynn Macau (63.2% of total revenue)[5]
| 2006 | 2007 | 2008 | |
| Occupancy | 80.6%[17] | 88.8%[17] | 87.3%[3] |
| Average Daily Rate | $238[17] | $251[17] | $275[3] |
| RevPAR | $192[17] | $223[17] | $240[3] |
| Total Revenue ($thousands) | 293,708[18] | 1,392,138[18] | 1,888,435[5] |
This segment is dedicated to the operation of the Wynn Macau and targets the Asian gaming market.[11] At the core of the Wynn Macau resort are 600 hotel rooms and suites, 380 table games, and about 1,270 slot machines in approximately 205,000 square feet of casino gaming space.[11] It also features five restaurants, a spa and salon, lounges, meeting facilities, and approximately 46,000 square feet dedicated to retail boutiques.[11] WYNN plans to open its $700 million Encore Macau in the first quarter of 2010 under this segment.[20]
During 3Q09, Wynn Macau, Limited, a wholly owned subsidiary of Wynn Resorts, announced a $1.6 billion stock offering, with individual shares valued at HK$10.08.[21]
Trends and Forces
Wynn insists on keeping full-time staff employed
A WYNN press release dated February 3, 2009 states the company's intention of keeping all of its full-time employees employed through the trying economic circumstances of the time[7] - a rare move as competitors like Las Vegas Sands dismiss over 10,000 workers at a time and layoffs between November 2008 and February 2009 at America's 500 biggest companies rapidly approach 500,000.[8] While WYNN's plan to preserve employment includes pay cuts, reduced work weeks for its employees, elimination of 2009 bonuses, and suspended 401(k) matching,[7] the decision is certainly different than those made by its competitors facing the same economic conditions; nevertheless, CEO Steve Wynn believes that eliminating job security worries amongst its employees is paramount to maintaining strong human capital, a driver of the consumer's experience at any Wynn casinos.[22]
WYNN has big exposure to the Macau gaming market
The Wynn Macau was opened in September 2006[23] and drives the company's revenues - in 2008, the single property generated $1.8 billion in revenues,[5] accounting for more than 60% of the company's total revenues for the year.[5] The Macau gaming market is largely dependent on the Chinese market and economy and, while Macau gaming industry revenues had increased every single year for nearly a decade into 2007, gaming revenues for the region decreased in 2008.[24] Furthermore, industry revenues in January 2009 dropped 30 percent from January 2008 as the global economic crisis affected Asian gamblers.[24] WYNN is committed to Macau market exposure with its Wynn Macau only a few years old and the Wynn Cotai in the works - if the market continues to worsen, Wynn's bottom line could be affected accordingly. During 2008, Wynn Macau saw its occupancy rate drop from 88.8% in 2007 to 87.3%[3] but saw increased revenues because of a $17 increase in the resort's RevPAR.[3]
Government Regulation and Gaming Laws
Macau's gaming laws and gaming taxes are relatively young and have few precedents, making them quite vulnerable to sudden change. China has a large and affluent middle class, but for many years travel and currency restrictions made it difficult and undesirable for visitors to come to Macau. The Chinese government relaxed many of these restrictions in 2002 when it granted gaming licenses to Wynn, Galaxy, and SJM;[25] as a result, the Macau gaming market grew to generate over $928 million in revenues during January 2009.[24] It has since reinacted new restrictions.
Competition
Wynn Resorts faces intense competition in both Las Vegas and Macau. The company’s primary competitors include Las Vegas Sands and MGM Mirage, both of which operate in the Las Vegas and Macau markets. Wynn Resorts also faces competition from privately-held Harrah’s Entertainment, Boyd Gaming, and Native American casinos.
- Las Vegas Sands: Like Wynn, LVS has two resort properties in Las Vegas, Nevada, and one in Macau, China.[26] It is developing additional properties in Las Vegas and Macau as well as expanding to Bethlehem, Pennsylvania and Singapore.[26]
- MGM Mirage: Operates casino resorts, golf courses, and golf clubs in the United States.[27] MGM has a strategic alliance with the Mashantucket Pequot Tribal Nation, owner of Foxwoods Casino Resort in Ledyard, Connecticut.[27]
- Boyd Gaming: Owns and operates casinos in Nevada, Illinois, Louisiana, Mississippi, Indiana, and New Jersey in addition to pari-mutuel jai alai facility in Florida, two travel agencies, and an insurance company.[28]
- Harrah's Entertainment: A gaming company that owns and operates under the Harrah's, Caesars and Horseshoe brand names.[29] It also owns the London Clubs International family of casinos and the World Series of Poker.[29] The company was purchased and taken private on January 28, 2008.[29]
| Number of Properties | Occupancy | RevPAR | Total Revenue ($millions) | Net Income ($millions) | |
|---|---|---|---|---|---|
| Wynn Resorts (WYNN)[30] | 3[31] | 91.8%[3] / 87.3%[3] | $265[3] / $240[3] | 2,987[32] | 210[32] |
| Las Vegas Sands (LVS)[33] | 6[34] | 91.3%[35] / 85.3%[35] | $212[35] / $193[35] | 522[35] / 1,611[35] | (164)[36] |
| MGM Mirage (MGM) | 20[37] | 93%[38][39] | Unavailable | 7,209[40] | 855[40] |
| Boyd Gaming (BYD) | 15[41] | 89.2%[42][43] | Unavailable | 1,781[44] | (223)[44] |
References
- ↑ John Dobosz (February 26, 2009). Going All In For Wynn. Forbes.
- ↑ 2.0 2.1 Oskar Garcia (February 20, 2009). Wynn Resorts to post 4Q earnings on Tuesday. Forbes.
- ↑ 3.00 3.01 3.02 3.03 3.04 3.05 3.06 3.07 3.08 3.09 3.10 3.11 3.12 3.13 3.14 3.15 3.16 WYNN February 24, 2009 8-K pg. 10
- ↑ 4.0 4.1 Associated Press (January 20, 2009). Economic slump spurs casino cost-cutting. msn Money.
- ↑ 5.0 5.1 5.2 5.3 5.4 5.5 5.6 WYNN 2008 10-K pg. 99
- ↑ Associated Press (February 25, 2009). Wynn Resorts slides as 4th-quarter results miss analysts' estimates; rating cut.
- ↑ 7.0 7.1 7.2 WYNN February 3, 2009 8-K
- ↑ 8.0 8.1 Klaus Kneale (February 11, 2009). Layoff Tracker. Forbes.
- ↑ 9.0 9.1 9.2 9.3 9.4 9.5 9.6 WYNN 2007 10-K pg. 2
- ↑ Steve Wynn Las Vegas Land Developer. EarlyVegas.com.
- ↑ 11.0 11.1 11.2 11.3 WYNN 2007 10-K pg. 3
- ↑ WYNN 2007 10-K pg. 4
- ↑ 13.0 13.1 Wynn Resorts, Limited Posts Third Quarter Results (October 10, 2008).
- ↑ 14.0 14.1 14.2 14.3 14.4 WYNN 2009 2Q09
- ↑ 15.0 15.1 15.2 15.3 15.4 WYNN 2009 3Q 8-K
- ↑ 16.0 16.1 Juliana Shallcross (December 22, 2008). Encore Las Vegas Will Open Tonight. Hotel Chatter.
- ↑ 17.00 17.01 17.02 17.03 17.04 17.05 17.06 17.07 17.08 17.09 17.10 17.11 WYNN 2007 10-K pg. 39
- ↑ 18.0 18.1 18.2 18.3 WYNN 2007 10-K pg. 99
- ↑ WYNN 08Q3 10-Q pg. 15
- ↑ Beth Jinks (October 30, 2008). Wynn Third-Quarter Profit Rises on Macau Gambling (Update2). Bloomberg.
- ↑ WYNN 8-K, Regulation FD Disclosure, 30 September 2009.
- ↑ Wynn Resorts Ltd. Q3 2008 Earnings Call Transcript. Seeking Alpha (October 30, 2008).
- ↑ AP (September 7, 2006). Stephen Wynn ready to open casino in Macau. msnbc.
- ↑ 24.0 24.1 24.2 Kari Jensen (February 9, 2009). Macau Gaming Revenue Falls 30 Percent in January. VOANews.
- ↑ MacauCasinoWorld.com: History.
- ↑ 26.0 26.1
- ↑ 27.0 27.1
- ↑
- ↑ 29.0 29.1 29.2 Corporate Profile. Harrah's Entertainment.
- ↑ Split metrics represent Las Vegas and Macau properties respectively.
- ↑ Investor Relations: Overview. Wynn Resorts.
- ↑ 32.0 32.1 WYNN 8-K pg. 6
- ↑ Split metrics represent Las Vegas Properties and The Venetian Macao respectively.
- ↑ Profile: Las Vegas Sands Corp.. Yahoo! Finance.
- ↑ 35.0 35.1 35.2 35.3 35.4 35.5
- ↑
- ↑ MGM 2008 10-K pg. 16
- ↑ MGM 2008 10-K pg. 27
- ↑ Metric for Las Vegas properties.
- ↑ 40.0 40.1 MGM 2008 10-K pg. 54
- ↑ Boyd Gaming Corp.: Profile. Yahoo! Finance.
- ↑ BYD 2008 10-K pg. 3
- ↑ Calculated as simple average of all individual properties' metrics
- ↑ 44.0 44.1 Boyd Gaming Corp.: Income Statement. Yahoo! Finance.
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